firm’s export performance.

Identify the steps managers can take to improve their firm’s export performance.

In addition to using EMCs, a firm can reduce the risks associated with exporting if it is careful about its choice of export strategy.15 A few guidelines can help firms improve their odds of success. For example, one of the most successful exporting firms in the world, the Minnesota Mining and Manufacturing Co. (3M), has built its export success on three main principles—enter on a small scale to reduce risks, add additional product lines once the exporting operations start to become successful, and hire locals to promote the firm’s products (3M’s export strategy is profiled in the accompanying Management Focus). Another successful exporter, Red Spot Paint & Varnish, emphasizes the importance of cultivating personal relationships when trying to build an export business (see the Management Focus at the end of this section).

The probability of exporting successfully can be increased dramatically by taking a handful of simple strategic steps. First, particularly for the novice exporter, it helps to hire an EMC or at least an experienced export consultant to help identify opportunities and navigate the paperwork and regulations so often involved in exporting. Second, it often makes sense to initially focus on one market or a handful of markets. Learn what is required to succeed in those markets before moving on to other markets. The firm that enters many markets at once runs the risk of spreading its limited management resources too thin. The result of such a shotgun approach to exporting may be a failure to become established in any one market. Third, as with 3M, it often makes sense to enter a foreign market on a small scale to reduce the costs of any subsequent failure. Most importantly, entering on a small scale provides the time and opportunity to learn about the foreign country before making significant capital commitments to that market. Fourth, the exporter needs to recognize the time and managerial commitment involved in building export sales and should hire additional personnel to oversee this activity. Fifth, in many countries, it is important to devote a lot of attention to building strong and enduring relationships with local distributors and/or customers (see the Management Focus on Red Spot Paint for an example). Sixth, as 3M often does, it is important to hire local personnel to help the firm establish itself in a foreign market. Local people are likely to have a much greater sense of how to do business in a given country than a manager from an exporting firm who has previously never set foot in that country. Seventh, several studies have suggested the firm needs to be proactive about seeking export opportunities.16 Armchair exporting does not work! The world will not normally beat a pathway to your door. Finally, it is important for the exporter to retain the option of local production. Once exports reach a sufficient volume to justify cost-efficient local production, the exporting firm should consider establishing production facilities in the foreign market. Such localization helps foster good relations with the foreign country and can lead to greater market acceptance. Exporting is often not an end in itself, but merely a step on the road toward establishment of foreign production (again, 3M provides an example of this philosophy).

MANAGEMENT FOCUS Red Spot Paint & Varnish

Established in 1903 and based in Evansville, Indiana, Red Spot Paint & Varnish Company is, in many ways, typical of the companies that can be found in the small towns of America’s heartland. The closely held company, whose CEO, Charles Storms, is the great-grandson of the founder, has 500 employees and annual sales of close to $90 million. The company’s main product is paint for plastic components used in the automobile industry. Red Spot products are seen on automobile bumpers, wheel covers, grilles, headlights, instrument panels, door inserts, radio buttons, and other components. Unlike many other companies of a similar size and location, however, Red Spot has a thriving international business. International sales (which include exports and local production by licensees) now account for between 15 percent and 25 percent of revenue in any one year, and Red Spot does business in about 15 countries.

Red Spot has long had some international sales and once won an export award. To further its international business, Red Spot hired a Central Michigan University professor, Bryan Williams. Williams, who was hired because of his foreign-language skills (he speaks German, Japanese, and some Chinese), was the first employee at Red Spot whose exclusive focus was international marketing and sales. His first challenge was the lack of staff skilled in the business of exporting. He found that it was difficult to build an international business without in-house expertise in the basic mechanics of exporting. According to Williams, Red Spot needed people who understood the nuts and bolts of exporting—letters of credit, payment terms, bills of lading, and so on. As might be expected for a business based in the heartland of America, no ready supply of such individuals was in the vicinity. It took Williams several years to solve this problem. Now, Red Spot has a full-time staff of two who have been trained in the principles of exporting and international operations.

A second problem that Williams encountered was the clash between the quarter-to-quarter mentality that frequently pervades management practice in the United States and the long-term perspective that is often necessary to build a successful international business. Williams has found that building long-term personal relationships with potential foreign customers is often the key to getting business. When foreign customers visit Evansville, Williams often invites them home for dinner. His young children even started calling one visitor from Hong Kong “Uncle.” Even with such efforts, however, the business may not come quickly. Meeting with potential foreign customers yields no direct business 90 percent of the time, although Williams points out that it often yields benefits in terms of competitive information and relationship building. He has found that perseverance pays. For example, Williams and Storms called on a major German automobile parts manufacturer for seven years before finally landing some business from the company.

Sources: R. L. Rose and C. Quintanilla, “More Small U.S. Firms Take Up Exporting with Much Success,” The Wall Street Journal, December 20, 1996, p. A1, A10; and interview with Bryan Williams of Red Spot Paint.

• QUICK STUDY

1. What steps can a company take to improve its export performance?

2. Outline the benefits and risks of using an export management company.

Export and Import Financing